Finance Minister Ishaq Dar on Friday announced Pakistan’s foreign exchange reserves have hit an all-time high of $24.5 billion. The State Bank of Pakistan holds $19.5bn in reserves, whereas commercial banks have $5bn in reserves. “There was a time when the country had reserves equal to a few weeks payment of the import bill but now we have reached a level where we have foreign exchange reserves equal to six months of import bill,” Dar said. It has to be reminded that it in October 1999 when PML-N government was overthrown, Pakistan had the lowest-ever foreign exchange reserves i.e. $ 2 bn, which was sufficient for a few week’s imports. The bad news is that Pakistan has a trade deficit of $7 bn during the first quarter of the current fiscal year; if this trend continues, the trade deficit would be $28 bn by the end of this fiscal year.
Even if Pakistan receives $20 billion from Pakistani expatriates, the current account deficit would be $8 bn. This means that 1/3rd of forex reserves would be wiped out and Pakistan would have to rely upon IMF loans. The most serious aspect of our dire economic situation is the growing debt that limits the fiscal space to invest in human development and infrastructure. Pakistan’s total external debt in June 2013 was $61. 85 bn, and in July 2016 it stands at $72.97. In other words $11 bn have been added during the last three years to the existing foreign debt. The reason for piling up Pakistan’s debt is that we spend more than we earn, and we import much more than we export. Government claimed that loans were taken to pay the old loans. The question is why then foreign loans have increased?
As a result, 60 per cent of total revenues are allocated for debt servicing alone, leaving little for investment in social and economic development. During Musharraf’s era – from 1999 to 2007 – there was no increase in external debt and remained static at $39 bn; but from 2008 to 2013 the external debt increased from $39 to $54 bn – increase of $16 bn during PPP’s five-year term. Pakistan’s total public debt stood at Rs. 6.3 trillion in 2008, and today it stands at Rs. 17 trillion, which means that public debt has increased around three times in the last eight years. One-third of this debt is foreign while the other two-third is domestic. Unfortunately, there is decline in exports. However, Ashraf Wathra had said: “Pakistan’s declining exports were reflective of a worldwide phenomenon. How will the exports increase if there is no surplus production to begin with?”
The question is why Pakistan has not been able to have a favorable balance throughout history of Pakistan, except once during Korean War and second time in 1973 during oil crisis? The answer is that no serious efforts were made to seek new avenues for exports and continued to depend on traditional textiles exports. Anyhow, the government must find ways and means to increase production by ensuring supply of electricity. It means the government should focus on the projects for generation of electricity that reduce the cost of energy. On their part, the trade and industry should resort to innovative marketing policies; look for non-traditional markets; and try to increase the exports of value-added products to overcome the trade deficit. How unfortunate that even remittances of $20 bn by expatriate Pakistan do not help overcome the current account deficit, and loans have to be taken to address the balance?
The threats faced by Pakistan have to be understood in the light of fast changing regional and international situation, which add urgency to revive the economy so that adequate resources could be allocated to defend Pakistan’s integrity and sovereignty. It is painful to note that except proverbial exception various governments in the past took loans by accepting and complying with harsh IMF conditions. Increase in the rates of utilities produces ‘the multiplier effect’, leading to cost-push inflation making it impossible for the local producers to compete in the world market. But this crisis is of our own making, as corruption has eaten into the vitals of the nation. The government should therefore restructure the public sector enterprises because on the average these state enterprises are causing loss of more than Rs. 500 billion per year. Almost Rs. 1000 billion per year are lost due to wastages, mismanagement and corruption.
If the government feels that it cannot make public sector enterprises profitable, then it should privatize them through transparent mechanism. Last but not the least; imports should be rationalized so that foreign exchange is not wasted on non-essential imports. To avert the economic disaster, the government must show zero-tolerance to corruption, tax evasion, wastages and mismanagement in public sector enterprises. It should learn to live within its means and reduce the non-development expenditure by curtailing perks and privileges of cabinet members and parliamentarians. In the past, in a quest to balance the budget or to keep the fiscal deficit within reasonable limits, the axe always fell on development expenditure. If it happens, Pakistan would not be able to build infrastructure for further development and industrialization to generate employment opportunities.
